Is Universal Publishing’s exit from collective licensing a step backwards for music industry ‘one stop’ aspirations?

March 2013

COPYRIGHTMusic publishing, recorded music sector, internet

The one question I always get asked by young entrepreneurs setting out to create legitimate digital offerings in the digital music space is where do they go to get licences to use music, and make payments? Well, there is no easy answer. In 2012 Daniel Ek, the creator of Spotify, pointed out that the European Union alone had 27 different music collection societies for songs – and a similar number for sound recordings as well as the the four major labels dealing directly for digital rights: Ek said the service’s U.S. debut was then still a few months off as Spotify worked through a maze of licensing issues with publishers, labels and collection societies, saying that to create a new above-board music platform in America under current copyright law required big reserves of money, lawyers and perseverance. And that’s just America! At the time Johanna Shelton, senior policy counsel for Google Inc said “The Internet is a simple distribution platform … [but] we’ve made things unnecessarily complex,” noting that calls for a music rights organisation, a one-stop shop to deal with all licensing issues, had gone unheeded. But we all now know that in default of legitimate services ……. piracy fills the void – and then no-one gets paid.

Martin Mills, the much respected boss of independent Beggars group whose labels include XL, 4AD and Rough Trade and home to Adele, The National, The Prodigy, Sigur Ros, Jack White and Vampire Weekend amongst others, recently admitted that rights owners – especially the bigger ones – had made various mistakes in the way they licence online content services in the last fifteen years, and that the music rights industry still needed to work harder on developing better cross-territory licences. That said, Mills told anaudience at the MIDEM convention “I don’t believe that the present day music industry is a reluctant licensor” adding “we do not need to have control of our rights taken away from us, to be forced to licence that in which we have invested at uneconomic prices, to simply allow huge tech firms to make even huger profits. Yes, music companies needed tech companies just like tech companies need content, but “as someone who invests in music – and when I looked at the numbers a few years ago we had written off £25 million in unrecouped advances to artists over the years – it makes me fume when politicians cosy up to the big techs at our cost and spout philosophically about the needs of the modern world, about us being dinosaurs, and about music’s irresistible urge to be liberated and free”.

European digital commissioner Neelie Kroes has been a staunch advocate on opening up digital licensing and said last year “Too many barriers still block the free flow of online services and entertainment across national borders [in Europe]. The Digital Agenda will update EU Single Market rules for the digital era” saying her aims were to boost the music download business, establish a single area for online payments, and further protect EU consumers in cyberspace. Kroes called on content owners of Europe to construct a “simple, consumer-friendly legal framework” for making digital content available across the Union saying the traditional content industries had not developed their licensing models fast enough to cope with the new demands of internet services saying “Digitisation has fundamentally changed content industries, but licensing models simply have not kept up with this. National licensing can create a series of Berlin cultural walls. The price, both in pounds and frustration, is all too real, as creators are stifled and consumers are left empty-handed. It is time for this dysfunction to end. We need a simple, consumer-friendly legal framework for making digital content available across borders in the EU”.

Mills took issue with some of Kroes’ comments, saying “All in life needs balance and vision, and the likes of Neelie Kroes miss that point. When businesses make money out of music, music rights owners must have the right to a fair share of that income”. Noting also that the music industry pumps a lot more into the tax system than many of the tech giants putting pressure on rights owners, Mills concluded: “I’m incensed about the discrimination and the lack of understanding with which those like us who spend their lives creating art that brings people joy, can get treated by those in power. I very much hope that we can all be a part of changing that, because unless we do, the ladder we climbed will not be there for those who follow us”.

I have recently blogged on the ongoing progress to establish a Global Repertoire Database for music (Global Repertoire Database Tunes Up): In Europe SACEM (France), SGAE (Spain) and SIAE (Italy) have joined forces to create ‘Armonia’, the first pan-European hub for licensing of online services, gathering together more than 5.5m works (the rights of which are managed by the three collecting societies), and addresses online exploitation and/or mobile uses over a territory of 35 countries. Other commercial developments include the collaboration between the PRS (UK) and STIM (Sweden) with a jointly-owned commercial service centre for back room operations; Publisher EMI has joined up with GEMA (Germany) and PRS and formed a ‘one-stop shop’ for the licensing of online rights and the UK is in the process of working out how a Copyright Hub – the Digital Copyright Exchange – might work – the place where any copyright owner can choose to register works, the associated rights to those works, permitted uses and licences granted and the place for potential licensees to go for easy to use, transparent, low transaction cost copyright licensing – streamlining copyright licensing and facilitating the licensing of copyrights on a ‘one stop shop’ basis with a registry of copyright data and copyright owners, and potentially with licensing mechanisms.

But conversely comes the news that Universal Music Publishing has confirmed its intention to withdraw it’s digital rights from US performance rights organisations ASCAP and BMI. CEO Zach Horowitz confirmed the planned move in a statement to Billboard, citing an inability from both societies to achieve market rates with digital services; the move will follow Sony/ATV/EMI’s lead, and will allow UMPG do direct deals with streaming services, with Horowitz saying “In order to ensure that our songwriters are fairly compensated, we believe the best approach is for us to negotiate directly with these services”. Recently Sony/ATV (now controlling the EMI catalogue) struck a direct deal with Pandora which seems to secure the Sony publisher a bigger cut of the royalties available for song rights from the streaming company. Billboard sources also report that BMG Chrysalis has also negotiated the option to do the same but is yet to decide if it will use a direct strategy, a a move away from blanket licence deals negotiated by the collecting societies.

So, if the bigger rights owners, who generally have more to gain from direct deals, move away from collective licensing, where does that leave the concept of a ‘one stop shop’? If a new digital music business has to go to all of the major publishers in the USA or elsewhere – and all of the major record labels – that means even more ‘stops’ than when Ek was trying to set up Spotify. And surely this must be a huge deterrent to legitimate business models? That said, one can see the attraction to the big rights owners to go it alone – higher royalty payments and upfront advances or even shareholdings, and also labels, publishers, songwriters and artists can retain vetoes over certain tracks and have a more hands on approach to licensing. And indeed, whilst it may be only ‘one’ company out of many that need to be cleared – that label or publisher may be able to offer global licence – a near must in most digital business plans.

And the whole issue is complicated further by the fact that no-one seems quite sure how advances from (or shareholdings in) digital operators are treated. For example how the major labels and Merlin, on behalf of the indeopdnent labels, account for their 18% shareholding in Spotify (valued at anything between $1 and $4 billion) to their recording artistes? How do Sony and UMG account for the value of their majority shareholding in premium video service Vevo to their artistes. An important question if you are a recording artiste (or songwriter)!

But we clearly have two way tension (at least): Universal’s move reveals the wish of content owners to manage their own digital rights – possibly on a global scale – but this should be balanced against the clear advantage of collective licensing and the fact without global one stop licensing the music industry runs the risk of promoting piracy through over complicating the legitimate market. Do we really want to exclude innovative but cash-strapped start-ups who could be blocked from the market? Do we want to marginalise smaller rights owners – who are further down the food chain from the major music publishers and recorded music groups? But as Martin Mills rightly says it seems equally wrong to force rights owners to “licence that in which we have invested at uneconomic prices, to simply allow huge tech firms to make even huger profits”.